Common Laws and Regulations of the Forex Markets
The foreign exchange industry is a multi-billion-dollar industry, one which sees currencies change hands every second of every day. Given the involvement of currencies from all four corners of the globe, governments have attempted to implement rules and legislation to regulate each forex trading platform that offers retail trading via desktop, smartphone or tablet devices. Subsequently, there are many international bodies that attempt to ensure forex brokers adhere to recognized industry protocol and provide a legitimate, transparent place for retail traders to invest in the forex markets. If you want to make sure you choose a legal broker, make sure you avail yourself of the leading regulatory bodies below, whom your preferred broker should be associated with, as well as the typical rules and regulations.
Active forex regulatory organisations
The Financial Conduct Authority (FCA)
The British independent regulatory body of the FCA has statutory powers given to it by the Financial Services and Markets Act (2000) and oversees the forex industry within the United Kingdom. It seeks to help weed out unauthorised forex trading and brokerage firms, helping retail traders to avoid online scams. The FCA operates an up-to-date register on all authorized UK firms capable of trading forex or providing trading platforms for retail traders to buy and sell forex or contracts for difference (CFDs), binary options and other commodities.
The Commodity Futures Trading Commission (CTFC)
For the American forex industry, the CTFC independently governs the commodity futures and options markets available to retail traders. It was established in 1974 to ensure a competitive and efficient futures market, protecting traders against illegal manipulation, trading practices and fraudulent activity. The CTFC is also playing an active role in the emergence of new markets such as the Bitcoin futures contracts, helping to maintain the integrity of the industry amid the face of innovation.
The National Futures Association (NFA)
All operating forex brokers in the United States must become members of the NFA in order to work on behalf of American retail traders. This self-regulatory body works hard to protect the integrity of the forex market and implements new forex regulations where necessary.
Common laws and regulations
- Each forex broker or platform must have a valid license to operate in the country you live in. If they do not, you could be trading illegally.
- Each licensed forex dealer or broker must accept periodic reviews and audits of its operations to ensure it strictly adheres to national regulations and industry standards.
- The law states that forex brokers must honor their contracts with each trading client. Failure to comply can lead to their license being revoked.
- A key feature of forex regulation is that each forex broker must have enough funds to cover their clients’ investments.
- All forex brokers and platforms must comply with fair representation legislation, clearly disclosing all potential risks involved with forex trading. Any forex broker that promises you will make a profit should be left well alone.
Forex trading can be a hugely profitable and enjoyable pastime or investment opportunity. However, if you are a retail trader and looking to invest some of your personal wealth, it’s vital that you seek fully regulated and licensed brokers to work dutifully on your behalf.